The Flat Tax thread

[MarkGrace]

I'm inclined to think this is false. The person making 100k is inclined to save more, but both groups have to purchase certain necessities to live.

Yes, this. It has nothing to do with "living within your means." There's a baseline of necessities that everyone has to purchase, and since people are getting taxed "equally" on some of those things, it represents a bigger burden the less you make. Then as your income goes up, that baseline of things represents less to you, and thus the burden is less and what you choose to spend from there becomes more discretionary.

You could, as someone suggested above, exempt a certain handful of things that qualify as necessities (food, clothing, etc.), but then you've already taken the first step toward progressivity and as moliere said that's a slippery slope back to the position we're already in.

I don't think there's any real argument that a flat tax is not regressive - everyone recognizes it is. Which is not to say it couldn't potentially be a good system, because it has proven to be in other countries (well, at least with respect to income). It's just to say that if you're selling a flat tax system, you have to count on people understanding its other potential benefits and just be ok with the fact that it is regressive. But like I said, I have a hard time seeing that fly in the US because too many people will always see it as unfair.

[All-American]

Yes, this. It has nothing to do with "living within your means." There's a baseline of necessities that everyone has to purchase, and since people are getting taxed "equally" on some of those things, it represents a bigger burden the less you make. Then as your income goes up, that baseline of things represents less to you, and thus the burden is less and what you choose to spend from there becomes more discretionary.

You could, as someone suggested above, exempt a certain handful of things that qualify as necessities (food, clothing, etc.), but then you've already taken the first step toward progressivity and as moliere said that's a slippery slope back to the position we're already in.

I don't think there's any real argument that a flat tax is not regressive - everyone recognizes it is. Which is not to say it couldn't potentially be a good system, because it has proven to be in other countries (well, at least with respect to income). It's just to say that if you're selling a flat tax system, you have to count on people understanding its other potential benefits and just be ok with the fact that it is regressive. But like I said, I have a hard time seeing that fly in the US because too many people will always see it as unfair.

That makes sense as long as the tax is limited to the consumption of necessities. As long as the other purchases are also taxed, then I don't see why it should be regressive.

I see Moliere's point that a dollar saved won't be taxed, but that dollar saved is eventually going to be spent on something, or it will be passed along to somebody else who will spend it on something. Saving should only affect tax revenue to the extent that it delays receipt of the tax.

I'm not saying you're wrong. I'm saying I don't get it.

[YOhio]

I'm surprised that Uncle Ted hasn't brought up the Fair Tax yet in this thread.

[MarkGrace]

That makes sense as long as the tax is limited to the consumption of necessities. As long as the other purchases are also taxed, then I don't see why it should be regressive.

It could become less regressive the more you move into "other purchases" and discretionary type spending. Then, as ilpad suggested, the penalty becomes more one of choice. Am I spending beyond my means, questions of savings vs. spending, etc. But that's just a matter of degree, not whether it is or isn't regressive overall. The core necessities (food, clothing, shelter) represents too big a piece of the spending puzzle for other purchases to undo its overall regressive nature.

[old_gregg]

It could become less regressive the more you move into "other purchases" and discretionary type spending. Then, as ilpad suggested, the penalty becomes more one of choice. Am I spending beyond my means, questions of savings vs. spending, etc. But that's just a matter of degree, not whether it is or isn't regressive overall. The core necessities (food, clothing, shelter) represents too big a piece of the spending puzzle for other purchases to undo its overall regressive nature.

right, and this is all secondary to the fact that consumption drives economic growth.

[Moliere]

That makes sense as long as the tax is limited to the consumption of necessities. As long as the other purchases are also taxed, then I don't see why it should be regressive.

I see Moliere's point that a dollar saved won't be taxed, but that dollar saved is eventually going to be spent on something, or it will be passed along to somebody else who will spend it on something. Saving should only affect tax revenue to the extent that it delays receipt of the tax.

I'm not saying you're wrong. I'm saying I don't get it.

True, the cash will be taxed at some point but my preferred tax plan would not be a flat tax. In fact, I'm anti-flat tax and pro-progressive tax. I think necessities should not be taxed and non-necessities should be taxed at whatever rate Congress sees fit. I just want the tax to be two things: Transparent and Paid out of pocket by the consumer.

[Paperback Writer]

I'm inclined to think this is false. The person making 100k is inclined to save more, but both groups have to purchase certain necessities to live. One way to fix this with a consumption tax is to place a higher tax rate on luxury goods. So the 50k guy purchases a Hyundai and pays 10% tax and the 100k guy buys a Mercedes and pays 15% tax.

I question this as I've known people who make very good incomes who are a financial mess while other people who earn modest incomes are very good at saving. Let's take your Hyundai vs Mercedes example. At a 10% flat tax the Hyundai buyer pays $2K tax on the $20K purchase while the Mercedes buyer pays $4K tax on the $40K purchase. The Mercedes buyer pays twice as much in consumption tax than the Hyundai buyer because she bought twice as much car. IMO, there's no need "fix this" by charging a different rate on luxury goods. This would disincentive luxury purchases and a step toward Uncle Sam's messed up income tax model. With a comsumption tax, it is better for the rich to spend their income because it increases tax coffers.

I'm OK with not taxing grocery staples to lessen the regressive nature of a consumption tax but wary of placing too many other "essentials" under that umbrella. I admit I'm biased, but it reminds me of a friend showing off his $100+ tennis shoes that his Mom managed to "afford" while being on public assistance. And me getting teased about my tennis shoes because they were a no-name brand that I had to buy myself.

[All-American]

True, the cash will be taxed at some point but my preferred tax plan would not be a flat tax. In fact, I'm anti-flat tax and pro-progressive tax. I think necessities should not be taxed and non-necessities should be taxed at whatever rate Congress sees fit. I just want the tax to be two things: Transparent and Paid out of pocket by the consumer.

Is your objection to a de iure flat tax or a de facto flat tax? (In other words, is your objection to a flat tax based on it being regressive in application, and would that objection be addressed if effective tax rates were neither progressive nor regressive?)

[All-American]

right, and this is all secondary to the fact that consumption drives economic growth.

I guess I am operating under the assumption that there's no appreciable difference between disincentivizing consumption via a consumption tax and disabling consumption via an income tax. I'm happy to have somebody explain why that assumption is wrong.

It could become less regressive the more you move into "other purchases" and discretionary type spending. Then, as ilpad suggested, the penalty becomes more one of choice. Am I spending beyond my means, questions of savings vs. spending, etc. But that's just a matter of degree, not whether it is or isn't regressive overall. The core necessities (food, clothing, shelter) represents too big a piece of the spending puzzle for other purchases to undo its overall regressive nature.

So is it just a matter of making sure other expenditures are included in the tax scheme?

[U-Ute]

This is great in theory, but becomes a real mess once you start arguing what is "necessary" and what isn't. Then throw lobbyists into the mix to influence those discussions.

[MarkGrace]

So is it just a matter of making sure other expenditures are included in the tax scheme?

I guess I'm not sure what you're saying/asking here. Other expenditures would be included in any scheme based on consumption, they just wouldn't be enough to change the overall regressive nature.

The only way to get around it is to start exempting certain purchases and having graduated rates based on the type of item. But I'm not sure even that would do it, though it could make the regression less pronounced. Of course then you're getting away from a true flat tax and just asking for mess similar to what we already have.

[Moliere]

This is great in theory, but becomes a real mess once you start arguing what is "necessary" and what isn't. Then throw lobbyists into the mix to influence those discussions.

It becomes much less messy when it's transparent to the consumer/voter. Right now the corporate giveaways are not even close to transparent. They are hidden and difficult for the consumer to understand. Do you or anyone else have any idea how gas exploration companies treat intangible drilling costs? Probably not, but there are some good giveaways in there.

Now, if when you fill up your car and you see a receipt that says $50 in gas and $10 in taxes and you know that gas is taxed at 20% and you just paid that 20% right there on the spot, then your knowledge on what you truly pay and why increases. Sure it's not fool proof, but it's a lot better than what we currently have in place.

[U-Ute]

It becomes much less messy when it's transparent to the consumer/voter. Right now the corporate giveaways are not even close to transparent. They are hidden and difficult for the consumer to understand. Do you or anyone else have any idea how gas exploration companies treat intangible drilling costs? Probably not, but there are some good giveaways in there.

Now, if when you fill up your car and you see a receipt that says $50 in gas and $10 in taxes and you know that gas is taxed at 20% and you just paid that 20% right there on the spot, then your knowledge on what you truly pay and why increases. Sure it's not fool proof, but it's a lot better than what we currently have in place.

I already have that on gas. There is a sticker on the pumps that shows me how much is going to state & fed for taxes on a per gallon basis.

What I see as the problem is part of the proposed scenario is the lack of taxes on "necessities", to lessen the impact of a regressive tax. Who gets to decide what is necessary and what isn't?

[Moliere]

I already have that on gas. There is a sticker on the pumps that shows me how much is going to state & fed for taxes on a per gallon basis.

What I see as the problem is part of the proposed scenario is the lack of taxes on "necessities", to lessen the impact of a regressive tax. Who gets to decide what is necessary and what isn't?

Congress.

Right, stop laughing. At the very least the % and $ tax would be listed and transparent, which is a huge improvement over the transparency that exists today.

[All-American]

I guess I'm not sure what you're saying/asking here. Other expenditures would be included in any scheme based on consumption, they just wouldn't be enough to change the overall regressive nature.

The only way to get around it is to start exempting certain purchases and having graduated rates based on the type of item. But I'm not sure even that would do it, though it could make the regression less pronounced. Of course then you're getting away from a true flat tax and just asking for mess similar to what we already have.

But if all other expenditures are included, then it shouldn't be regressive. If a flat tax rate applies to each expenditure, then rates should be the same for everybody so long as no expenditures are exempted and all money earned is eventually spent. Right?

What are the wealthy doing with their money that doesn't get taxed now and won't be taxed later?